Retirement, Savings, Life Expectancy…The Numbers Don’t Add Up

They could say things like, “I’ve Got Your Number,” or “Who’s Counting?” or some other pithy remark. The point is, I don’t think that actuaries — and their affinity group — get much respect, and yet they should.

Not because everyone wants to join this club, but because the organization wields such power, even though most people have never heard of them.

Actuaries are the people that calculate the probability of something happening, particularly analyzing risk-related events like hurricanes and floods. Some of their most notable work is figuring out how long people will live on average, which is very useful for insurance companies and other firms that key off of people’s longevity.

While most people can’t exactly describe what an actuary does, the Society of Actuaries just told most Americans something very personal about themselves — when it comes to retirement, they’re even worse off than they thought. And there’s one reason for that…

The Society just released its latest estimates of longevity, the first revision since 2000. A 65-year-old man is expected to reach 86.6 years of age, up 2.0 years from the estimate in 2000, while a 65-year-old woman’s life expectancy has been increased by 2.4 years.

The news is hitting home for companies that offer pensions because they’re legally required to use the Society’s life expectancy tables in calculating their pension obligations. Adding a couple of years onto every future retiree’s stream of payments means that a lot more money will go out the door.

Take the case of General Motors… the life expectancy change added $2 billion in pension liabilities. The consulting firm Towers Watson estimates that the change could cost the pension plans of the 400 largest U.S. companies roughly $72 billion. That’s a lot of cash.

But, according to analysts, the story isn’t all that bad.

Luckily, private pensions have been winding down. Just 16% of private-sector employees participated in defined benefit pension programs, with 15.7 million active members. That’s 48% less than the number of people covered by such plans in 1980.

So, luckily, a bunch of private companies won’t be footing the bill for longer payments to as many people as they would have in the past.

But here’s the catch — those people still exist. Not the same ones from the 1980s, but private-sector employees in general. If they aren’t covered by private pension funds from their employers, then here’s the question: who is responsible for their retirement?

They are.

This is where the message from the Society of Actuaries to the average American comes into play. The typical American at 65 is not covered by a pension, but is still expected to live a couple of years longer than he was in 2000. The retirement funding for this person comes partly from Social Security (with its own problems) and partly from his own savings.

Hmm…

The Federal Reserve released the results of its 2013 Survey of Consumer Finances (SCF) last year. According to that study, only 56.5% of 45- to 54-year-olds had a retirement account, a sizeable drop from the 65.4% of people in the same age range who had retirement accounts in 2007. Those who actually had a retirement account in 2013 had just $87,000 in it.

This is the median, so 50% of the people had more than this, while 50% had less.

The average American has fewer retirement benefits, little in savings and will live longer.

Of course, there is that other type of employee, the one that works for a government entity. According to the latest release from the Census Bureau, there are 3,992 pension plans for states and local entities, covering 14,222,906 people. These plans had total assets of $2,715 billion and obligations of $3,615 billion, leaving them underfunded by roughly $900 billion.

Keep in mind that these are 2013 figures and will change with the new actuarial report. Increasing the life expectancy of the membership will result in immediate higher obligations with no change in assets, making the plans even more underfunded.

But the people covered by the public pensions don’t have to worry too much, their benefits are covered by states, cities, and other entities that have to come up with the money to make good on their promises.

If “buy-and-hold” and the notion that you can’t beat the market have left you short of your personal and retirement goals, then you’re going to want to hear the truth about passive and active investing.

Chances are if you’re more than 25 years old, you think it’s impossible to “beat the market!” But you CAN beat the market… you just need to use the right strategy! Find out more in our new report from Adam O’Dell,, Why Winners Keep Winning (And Losers Keep Losing)!

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.

About Us

Economy & Markets Daily is the first e-letter of its kind that uses the power of demographic trends and purchasing power to accurately identify economic and market boom and busts.

We believe that knowing what consumers are going to buy next (purchasing power)... or what they'll stop buying soon... is the best way to protect your investment portfolio, maximize your returns, and make smart business and financial decisions.

Each week day, Harry Dent, Rodney Johnson, and Adam O'Dell share with you their views on demographic trends, their market research, their economic research, the housing market, economic cycles, market cycles, business cycles, and the looming economic collapse and market crash.